The Economic Impact of the Constitution Pipeline

The Economic Impact of the Constitution Pipeline

June, 2013

The Economic Impact of the Constitution Pipeline

June, 2013

Prepared for: Constitution Pipeline, LLC

Prepared By: Kent Gardner, Ph.D.

Scott Sittig, MPP Project Directors

1 South Washington Street Suite 400

Rochester, NY 14614 585.325.6360

www.cgr.org

©Copyright CGR Inc. 2013 – All Rights Reserved

i

The Economic Impact of the Constitution Pipeline June, 2013

EXECUTIVE SUMMARY

The Constitution Pipeline is a proposed interstate natural gas transmission

pipeline that runs through five counties between New York and

Pennsylvania. The plan is to connect downstate New York City (NYC)

and New England (Boston area) markets with Marcellus Shale deposits of

natural gas from northern Pennsylvania. The Constitution Pipeline

Company, LLC (CPC) projects to spend about $683 million during the

initial three year planning and building process. Some of the investment

will be spent on specialized labor and materials brought in from outside

the region, leaving approximately $166 million (24%) of the investment to

directly benefit the five county region.

CPC plans to lay approximately 125 miles of 30” pipeline – roughly 80%

in New York and 20% in Pennsylvania – and create capacity to deliver up

to 650,000 dekatherms of natural gas to parts of downstate New York

State (NYS) and some areas in New England. The project will involve

building two meter stations – one in New York, and one in Pennsylvania.

Constitution has reached an agreement with Iroquois Gas Transmission for

Iroquois to modify its existing Wright compressor station to provide the

compression needed at the terminus of the pipeline.

The Center for Governmental Research (CGR) was engaged to calculate

the economic impact the project could have on the five county region.

CGR developed estimates of changes in employment and regional

earnings during the development and construction phase as well as the

operational phase that will commence post construction. The economic

impact during the construction phase could result in:

1,300 direct jobs in the construction industry and 275 spillover jobs;

$130 million of direct labor income, $26 million going to region

residents;

$12 million in spillover income, about $11m going to the region; and

$17 million in sales and income tax revenue from increases in income

(both direct and spillover) and project spending.

Once operational the pipeline’s economic impact could result in:

12 jobs in the region;

Over $600 thousand in labor income in the region; and

$13 million in sales, income and property tax revenue in the region.

ii

Acknowledgements

CGR would like to thank the staff at Constitution Pipeline Company, LLC

for their help in gathering data and putting it in context. Matthew Swift,

Project Manager for Constitution Pipeline Company, was an invaluable

resource for financial information and detailed project descriptions.

Staff Team Project Directors, Kent Gardner, Ph.D. and Scott F. Sittig, M.P.P.

collaborated on the analysis and generating the final report.

Principal project support was provided by Mike Silva, Data Analyst. Mr.

Silva handled draft reporting, data entry, primary analysis and provided

methodological support.

iii

TABLE OF CONTENTS

Executive Summary ........................................................................................... i

Table of Contents ..............................................................................................iii

Introduction ....................................................................................................... 1

Methodology ..................................................................................................... 3

Economic & Fiscal Impacts .............................................................................. 4

Construction Phase ...................................................................................................... 4

Direct Economic Impact ......................................................................................... 4

Direct Fiscal Impact ............................................................................................... 6

Spillover Effects ..................................................................................................... 7

Operational Phase ........................................................................................................ 8

Summary ........................................................................................................... 9

Appendix ..........................................................................................................10

Estimated Impact on the Region’s Unemployment Rate ............................................ 10

Breakout of Spillover Employment by Industry........................................................... 11

Economic and Fiscal Impact – By County .................................................................. 12

Property Tax Revenues by County ...................................................................... 16

Map of Proposed Pipeline .......................................................................................... 20

1

INTRODUCTION

Climate change concerns and the risks of dependence on foreign oil have

driven a steady expansion in the use of natural gas. New extraction

technology, particularly the hydraulic fracturing technique pioneered in

the Barnett Shale, has accelerated this trend by dramatically increasing

supply. This rapid expansion of supply and associated reduction in cost

has spurred new demand for natural gas pipeline transmission. One new

opportunity, and the subject of this report, is a new pipeline being

developed in northern Pennsylvania (PA) that will create capacity to

transport natural gas into downstate NYS and some New England markets.

The Constitution Pipeline Company, LLC (CPC) is a joint venture of

Williams Partners Operating, LLC (NYSE: WPZ), an energy

infrastructure company, Cabot Pipeline Holdings, LLC (NYSE: COG), an

independent gas producer, Piedmont Constitution Pipeline Company, LLC

(NYSE: PNY), and Capital Energy Ventures Corp, subsidiary of WGL

Holdings (NYSE: WGL). With a 41% stake

1 in the project, Williams

expects to create the capacity to transport 650,000 dekatherms of natural

gas per day which is the equivalent of serving the energy needs of

approximately 3 million homes per day. Williams currently provides

natural gas transportation through 15,000 miles of interstate natural gas

pipelines, delivering about 14 percent of the natural gas consumed in the

US.2

Figure 1: Williams Gas Company Current Infrastructure

1 http://www.ogj.com/articles/2012/04/cabot-williams-sign-agreements-for-constitution-

pipeline.html 2 http://co.williams.com/williams/operations/gas-pipeline/

http://www.ogj.com/articles/2012/04/cabot-williams-sign-agreements-for-constitution-pipeline.html

http://www.ogj.com/articles/2012/04/cabot-williams-sign-agreements-for-constitution-pipeline.html

http://co.williams.com/williams/operations/gas-pipeline/

2

Cabot is a natural gas producer, whose operations include Eagle Ford

Shale in South Texas, Marmaton in Oklahoma, and Marcellus Shale in

Pennsylvania.3 As of December 31, 2011, Cabot had 3,033 Bcfe (Billions

of cubic feet equivalents) in total reserves, and Marcellus alone produced

600 Mmcf per day that year.4 Piedmont is a distributor of natural gas to

residential, commercial and utility customers in the Carolinas and

Tennessee5. Capital Energy Ventures acquires, manages and optimizes

natural gas storage and transportation assets. The proposed project will

connect Cabot’s supply of natural gas from the Marcellus Shale to New

York and Boston area markets.

Figure 2: Cabot Oil & Gas Natural Gas Deposits

A subsidiary of Williams, the CPC will build its interstate pipeline

beginning in Susquehanna County, PA and ending in Schoharie County,

NY. In all, approximately 125 miles of 30” pipeline will connect natural

gas sources in Susquehanna County with the Iroquois Gas Transmission

and Tennessee Gas Pipeline systems in Schoharie County. The pipeline

will run through five counties including Chenango, Delaware and Broome

in New York State in addition to Schoharie and Susquehanna. The project

is expected to cost $683 million and take approximately three years to

complete. Almost a third of the investment ($233m or 32%) will be made

3 http://www.cabotog.com/history.html

4 http://www.cabotog.com/pdfs/COG-2011-AR.pdf

5 http://piedmontng.com/about/aboutpng/

http://www.cabotog.com/history.html

http://www.cabotog.com/pdfs/COG-2011-AR.pdf

http://piedmontng.com/about/aboutpng/

3

in NY and PA but only $166m (24%) will be invested directly in the five

county region. A map of the proposed route of the pipeline through each

of the five counties can be found in the appendix of this report.6 The

following table enumerates the estimated length of pipeline installation

and the location of the meter stations by county.

Table 1: Constitution Pipeline Project

County Approx. Miles

Broome, NY 17.0

Chenango, NY 8.3

Delaware, NY 42.9

Schoharie, NY 30.9

Susquehanna, PA 25.1

Total 124.1

Stations County

Greenfield Meter Station Susquehanna, PA

Greenfield Meter Station Schoharie, NY

Building the pipeline will result in temporary jobs for the region during

the construction phase of the project. The ongoing operation of the

pipeline will result in additional permanent jobs. The purpose of this

report is to quantify the economic and fiscal impact of the Constitution

Pipeline in terms of temporary construction and full-time permanent jobs

for the five counties in the region.

Further details about the project and information on the project timeline

and progress can be accessed at the project website:

http://constitutionpipeline.com/.

METHODOLOGY

The economic impact of the pipeline investment on the region will be

realized in two phases. The first phase consists of the preparation,

planning and construction of the pipeline and is scheduled to occur over a

three year time horizon. The physical construction of the pipeline is only

one component of the first phase and is expected to occur during an eight

month period. It is during this part of phase one that the highest number

of new jobs will be created. The second phase consists of the ongoing

operation of the pipeline after the three year development process is

complete.

6 Additional and more detailed maps can be obtained by going to the project website at

http://constitutionpipeline.com/maps/.

http://constitutionpipeline.com/

http://constitutionpipeline.com/maps/

4

CGR models economic impact by measuring the change in employment,

labor income and tax revenue that is generated from a change in the

economic activity of a region. Employment and income generated from

the construction phase of a project are reported separately due to the

temporary nature of the investment. The employment and income from

the operational phase represents a permanent change in the size of the

regional economy and is thus differentiated from the construction impact.

CPC provided the investment estimates and the operational employment

and income figures for the analysis.

Labor for the project will be drawn from both inside and outside the

region. For instance, skilled craftsmen may be brought into the region for

certain parts of the project while local laborers will be used for other parts.

Additionally, some materials and other professional support will be

purchased from outside the region. Using labor and professional support

from outside the region is the primary reason that not all the money

invested in the project will benefit the five counties.

The economic benefits of the Constitution Pipeline were determined using

the MIG Group’s IMPLAN input-output model. The IMPLAN database

consists of two major parts: 1) a national-level technology matrix and 2)

estimates of sectorial activity for final demand, final payments, industry

output and employment for each county in the U.S. along with state and

national totals. Data are updated annually. IMPLAN estimates the direct,

indirect and induced impacts of economic change through the use of

multipliers, and estimates the impact of a change in demand on 440

different industries/sectors of the economy. IMPLAN’s algorithms allow

CGR to construct a unified, multi-county model of the impact region.

ECONOMIC & FISCAL IMPACTS

CPC’s construction of the pipeline will generate a substantial but

temporary boost to employment in the region leading to a smaller but

more permanent impact once the pipeline is operational through ongoing

monitoring and maintenance.

Construction Phase

Direct Economic Impact

During the construction phase, CPC estimates the workforce will be

comprised of five teams of 260 workers totaling up to 1,300 new

construction jobs. In-state trade unions are expected to provide

approximately 50 percent of the construction workforce. However, due to

the specialized nature of pipeline construction, local trade unions may

need to hire personnel from outside of the project area. At this time, it is

5

anticipated that approximately 25 percent of the construction workforce

will be hired locally (i.e., within the 5-county project area).

Table 2: Estimated Temporary Construction Workers

In State Out of State Total

5 County Region Total 325 N/A 325

Grand Total 650 650 1,300

NY Portion 519 519 1,037

From 5 County Region 259 N/A 259

PA Portion 132 132 263

From 5 County Region 66 N/A 66

When estimating the impact of spending for labor, we assume that wages

are paid to laborers at their place of work, but all of it is spent at their

place of residence. As an example, if a worker from Binghamton is

working on the project, Broome County and hence the region benefits

from the investment in payroll. However, if the worker lives in Albany or

Syracuse or Cleveland, then the economic benefit “leaks” from the region.

Table 3: Estimated Workers by Residence and Place of Work

County Where the Work will Occur

Number of Workers

Total Number of Workers

Reside Inside 5 County Region

Reside Outside 5 County Region

Susquehanna, PA 263 66 197

Broome, NY 178 45 133

Chenango, NY 87 22 65

Delaware, NY 449 112 337

Schoharie, NY 323 81 242

Grand Total 1,300 326 974

Using the latest Census Transportation Planning Package (CTPP) data we

assume that 81% to 98% of the workers from inside the region reside in

the county where they will work. We assume they would not need to

relocate and would not need to commute to another county. The following

table summarizes the number of workers based on potential relocation

needs.

6

Table 4: Estimated Relocation Needs of Workers

County Where the Work will

Occur

Number of Workers NOT Needing to

Relocate

Number of Workers that MAY Temporarily

Relocate

Susquehanna, PA 61 202

Broome, NY 41 137

Chenango, NY 18 69

Delaware, NY 110 339

Schoharie, NY 78 245

Grand Total 308 992

Assuming that the regional construction industry is operating at full

capacity7, this temporary boost of construction workers would be expected

to have a small impact on the region’s unemployment rate8.

Table 5: Changes in the Unemployment Rate due to the Increase in

Temporary Construction Jobs

Unemployment

Rate Estimated

Unemployment Rate Change

Susquehanna, PA 7.5% 7.3% -0.2%

Broome, NY 8.8% 8.8% 0.0%

Chenango, NY 8.4% 8.3% -0.1%

Delaware, NY 8.9% 8.3% -0.5%

Schoharie, NY 9.5% 9.0% -0.5%

5 County Region 8.7% 8.5% -0.2%

Direct Fiscal Impact

CPC estimates the project will result in purchases of goods and services

within New York and Pennsylvania totaling $233M. $166M of the

7 CGR reviewed the BLS statistics and determined a national average of approximately

14% unemployment in the construction industry. However, we chose to model the

impact at full capacity to showcase maximum potential impact. We acknowledge that

estimates of full employment are rare and unlikely, even in communities experiencing

significant growth. However, it is also unusual to model these types of changes at such a

granular level. The real impact on the unemployment rate is likely to be less. 8 The unemployment rate would be unchanged by workers coming from outside the

region using the strict definition and methodology to calculate the rate. Unemployment is

officially measured by counting those within a region who are employed or seeking

employment. An influx of temporary workers from outside the region will boost

economic activity in the region, but will not “officially” lower the unemployment rate as

they would not be considered “residents of the region” and would not be officially

included in the count.

7

purchases will be within the five county region. Some of these purchases

will be on goods subject to sales tax. This spending is estimated to

generate $3.3M in sales tax revenues in total. Construction materials, a

portion of the sales taxable items, will add approximately $3.2M of sales

tax revenue.

Table 6 : Spending and Sales Tax Revenue

(millions)

Total

Spending Sales Tax Revenue

Sales Taxable Items

5 County Region Total $36.8 $2.8

Grand Total $43.5 $3.3

New York $34.4 $2.8

Pennsylvania $9.1 $0.5

Construction Materials

5 County Region Total $36.0 $2.7

Grand Total $42.4 $3.2

New York $33.7 $2.7

Pennsylvania $8.7 $0.5

Note: Subtotals may not sum due to rounding

The 1,300 jobs generated during the construction phase will generate an

estimated $130M of labor income, resulting in $11.3M of income tax

revenues, and $1.2M of sales tax revenue. Of the $130M, $26M of labor

income will benefit residents of the five county region.

Table 7: Fiscal Impact of Temporary Construction Workers Income

(millions)

Workers Labor

Income Income Tax

Revenue Sales Tax Revenue

5 County Region Total 325 $26.0 $4.5 $0.6

NY Portion 1,037 $103.1 $10.5 $1.0

PA Portion 263 $26.8 $0.8 $0.2

Grand Total 1,300 $129.8 $11.3 $1.2

Spillover Effects

The spending during the construction phase will also spur additional

economic activity in both the state and the region. 275 spillover jobs will

be supported by the spending activity. It will generate a total of $12.1M in

labor income and $1.5M in income and sales tax revenue.

8

Table 8: Total “Spillover” Effects (millions)

Workers Labor

Income Income Tax


5 County Region Total 241 $10.6 $1.0 $0.2

NY Portion 219 $9.7 $1.1 $0.2

PA Portion 56 $2.4 $0.1 $0.0

Grand Total 275 $12.1 $1.2 $0.3

Operational Phase It is estimated that once operational the Constitution Pipeline will employ

seven people. These jobs will result in about $500 thousand of new labor

income for the states generating a potential for $68 thousand of income tax

revenue and $11 thousand of sales tax revenue annually.

Table 9: Direct Economic and Fiscal Impact once Operational

(thousands)

Workers Labor Income Income Tax


New York 5 $362.0 $63.8 $8.7

Pennsylvania 2 $144.8 $4.4 $2.6

Direct Total 7 $506.8 $68.2 $11.3

The addition of these 7 jobs and their spending will spur job creation in

supporting industries. It is estimated that five new jobs will emerge as

part of the spillover impact.

Table 10: “Spillover” Economic and Fiscal Impact once Operational

(thousands)

Workers Labor Income Income Tax


New York 4 $128.4 $11.7 $3.1

Pennsylvania 1 $51.4 $1.6 $0.9

Spillover Total 5 $179.8 $13.2 $4.0

Additionally, a new annual stream of about $13 million in property tax

revenue is expected for the counties as a result of the pipeline. The

following table breaks out these property tax revenues by county.

9

Table 11: Expected Property Tax Revenues by County

(thousands)

Total

Broome, NY $2,100

Chenango, NY $1,300

Delaware, NY $4,900

Schoharie, NY $4,400

Susquehanna, PA $250

Grand Total $12,950

The total impact of the Constitutional Pipeline once operational is

summarized in the following table:

Table 12: Total Economic and Fiscal Impact once Operational

(thousands)

New York Pennsylvania Total

Total Employment (Direct + Spillover) 9 3 12

Labor Income $490.4 $196.2 $686.6

Income Tax Revenue $75.5 $6.0 $81.5

Sales Tax Revenue $11.8 $3.5 $15.3

Property Tax Revenue $12,700 $250 $12,950

SUMMARY

The economic impact of the proposed Constitution Pipeline has been

modeled in this report. During this three year project approximately 125

miles of pipeline will be installed in New York and Pennsylvania. In

addition to the pipeline, two meter stations – one in New York and one in

Pennsylvania - will be built. Based on the proposed project expenditures

forecast by CPC the economic impact for the region during the

construction phase can be summarized as:

1,300 direct jobs in the construction industry and 275 spillover jobs;

$130 million of direct labor income, $26 million going to region

residents;

$12 million in spillover income, about $11m going to the region; and

$ 17million in sales and income tax revenue from increases in income

(both direct and spillover) and project spending.

Once operational the pipeline’s economic impact will include a total of:

12 jobs in the region;

Over $600 thousand in labor income in the region; and

$13 million in sales, income and property tax revenue in the region.

10

APPENDIX

Estimated Impact on the Region’s Unemployment Rate

To estimate the impact of the Constitution Pipeline on the unemployment

rates we begin with unemployment data published by the BLS.

Number Unemployed

(2012) Labor Force

Unemployment Rate

Susquehanna, PA 1,754 23,259 7.5%

Broome, NY 8,179 92,438 8.8%

Chenango, NY 2,088 24,844 8.4%

Delaware, NY 1,911 21,566 8.9%

Schoharie, NY 1,472 15,450 9.5%

5 County Region 15,404 177,557 8.7%

Source: Bureau of Labor Statistics, LAUS

Table 4 in the report gave the number of workers not needing to relocate

because they live in the county where the work is expected to be

performed. The table estimates the additional construction worker jobs by

county. We assume the construction industry is working at full capacity;

therefore all 307 jobs will be filled by unemployed workers9.

Additional

Construction Workers Number

Unemployed Unemployment

Rate

Susquehanna, PA 61 1,693 7.3%

Broome, NY 41 8,138 8.8%

Chenango, NY 18 2,070 8.3%

Delaware, NY 110 1,801 8.4%

Schoharie, NY 78 1,394 9.0%

5 County Region 307 15,097 8.5%

9 Please refer to the footnotes on page 6 of the report for a discussion about the

assumptions used in these calculations.

11

Breakout of Spillover Employment by Industry

Spending on goods and services to construct the Constitution Pipeline will

spur job creation in other industries. The following is an estimate of the

breakout of the 275 additional jobs by industry group.

12

Economic and Fiscal Impact – By County The following tables give county level estimates of the economic impact

of the Constitution Pipeline.

NOTE: The allocation of employment, income and tax revenue across

individual counties is impossible to estimate with precision because

differences in labor supply, the location of subcontractors, housing

differences, consumer preferences and the nature of retail markets will all

influence the locus of the economic effect. These should be considered

“best-guess” estimates only.

Table 13: Economic and Fiscal Impact Broome, NY

(millions)

Total 5 County Region

County Residents

Construction Phase

Construction Employment 178 45 41

Labor Income $17.7 $3.5 $3.2



Spillover Employment 32 N/A N/A

Labor Income $1.4 N/A N/A

Income Tax Revenue $0.2 N/A N/A

Sales Tax Revenue $0.03 N/A N/A

Construction Spending $17.2 N/A N/A

Sales Taxable Items $10.8 N/A N/A

Construction Materials $4.9 N/A N/A

Spending Sales Tax Revenue $0.9 N/A N/A


Other Sales Taxable Items

N/A N/A

Operational Phase

Permanent Employment N/A N/A N/A

Labor Income N/A N/A N/A

Income Tax Revenue N/A N/A N/A

Sales Tax Revenue N/A N/A N/A

Spillover Employment N/A N/A N/A




Property Tax Revenue $2.1 N/A N/A

13

Table 14: Economic and Fiscal Impact Chenango, NY

(millions)


County Residents

Construction Phase


Labor Income $8.6 $1.7 $1.4













N/A N/A

Operational Phase










14

Table 15: Economic and Fiscal Impact Delaware, NY

(millions)


County Residents

Construction Phase


Labor Income $44.7 $8.9 $8.8













N/A N/A

Operational Phase










15

Table 16: Economic and Fiscal Impact Schoharie, NY

(millions)


County Residents

Construction Phase


Labor Income $32.1 $6.4 $6.2












Other Sales Taxable Items $0.9 N/A N/A

Operational Phase

Permanent Employment 5 N/A N/A









16

Table 17: Economic and Fiscal Impact Susquehanna, PA

(millions)


County Residents

Construction Phase


Labor Income $26.8 $5.4 $5.0












Other Sales Taxable Items $0.02 N/A N/A

Operational Phase

Permanent Employment 2 N/A N/A









Property Tax Revenues by County

Property taxes will accrue to different levels of government in different

proportions. The figures in the accompanying charts provide estimates of

the percentage breakdown for property tax revenues that will accrue

between school districts, local governments and the counties.

17

Figure 1: Distribution of Broome County Property Tax Revenues by

Type of Government

Figure 2: Distribution of Chenango County Property Tax Revenues

by Type of Government

18

Figure 3: Distribution of Delaware County Property Tax Revenues by

Type of Government

Figure 4: Distribution of Schoharie County Property Tax Revenues

by Type of Government

19

Figure 5: Distribution of Susquehanna Property Tax Revenues by

Type of Government

20

Map of Proposed Pipeline

Documents

The Economic Impact of the Constitution Pipeline